Xerox Corporation (XRX) showed an improvement in net earnings (adjusted) to $342 million or 24 cents per share in the second quarter of 2010 from $158 million or 18 cents per share in the last year’s quarter. This was attributable to an impressive growth in its Services segment, which is, in turn, led by solid performances in its business process outsourcing (BPO) services business.
The company overshadowed the Zacks Consensus Estimate of 21 cents per share. The adjusted EPS excluded 8 cents from restructuring charges and amortization of intangibles as well as acquisition-related and litigation costs.
Revenues during the quarter rose 48% to $5.51 billion, closely meeting the Zacks Consensus Estimate of $5.54 billion. The operating profit margin went up nearly 1 percentage point to 10.1% from the previous year, driven by an improvement in gross margin.
The company attributed the strong results to its diverse portfolio of products and its joint activities with newly acquired IT outsourcing firm, Affiliated Computer Services (“ACS").
Performance by Segment
Revenues in the Technology segment inched up 3% to $2.56 billion, driven by an 11% improvement in equipment sales. The segment profit increased $25 million to $273 million from the same quarter last year.
Revenues in the Services segment nearly tripled to $2.53 billion from $850 million in the second quarter of 2009. This was attributable to a 3% rise in revenues from BPO services, which accounted for 53% of total revenues in the segment. The segment profit more than quintupled to $61 million from the year-ago level.
The Other segment reported a 5% rise in revenue to $424 million. However, the segment showed a wider loss of $93 million compared to $80 million a year ago, due to higher interest expense.
Financial Position
Xerox had cash and cash equivalents of $1.08 billion as of June 30, 2010. Total debt amounted to $9.62 billion, reflecting a debt-to-capitalization ratio of 46%.
In the first half of 2010, net cash from operating activities improved to $1.05 billion from $631 million in the same period of 2009. Capital expenditures increased to $134 million in the same period from $48 million a year ago.
Outlook
Based on the strong results, Xerox has revised its full-year 2010 estimates upward. The company expects adjusted EPS in the range of 88 cents–92 cents, up from the previous guidance of 75 cents–85 cents per share.
Despite the improved results, we believe intense competition from its peers and rising debt will adversely affect the company’s operations in the near future. As a result, we recommend the shares of the company as Hold (Zacks #3 Rank) in the short-term.
Read the full analyst report on "XRX"
Zacks Investment Research
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Revenues during the quarter rose 48% to $5.51 billion, closely meeting the Zacks Consensus Estimate of $5.54 billion. The operating profit margin went up nearly 1 percentage point to 10.1% from the previous year, driven by an improvement in gross margin.
The company attributed the strong results to its diverse portfolio of products and its joint activities with newly acquired IT outsourcing firm, Affiliated Computer Services (“ACS").
Performance by Segment
Revenues in the Technology segment inched up 3% to $2.56 billion, driven by an 11% improvement in equipment sales. The segment profit increased $25 million to $273 million from the same quarter last year.
Revenues in the Services segment nearly tripled to $2.53 billion from $850 million in the second quarter of 2009. This was attributable to a 3% rise in revenues from BPO services, which accounted for 53% of total revenues in the segment. The segment profit more than quintupled to $61 million from the year-ago level.
The Other segment reported a 5% rise in revenue to $424 million. However, the segment showed a wider loss of $93 million compared to $80 million a year ago, due to higher interest expense.
Financial Position
Xerox had cash and cash equivalents of $1.08 billion as of June 30, 2010. Total debt amounted to $9.62 billion, reflecting a debt-to-capitalization ratio of 46%.
In the first half of 2010, net cash from operating activities improved to $1.05 billion from $631 million in the same period of 2009. Capital expenditures increased to $134 million in the same period from $48 million a year ago.
Outlook
Based on the strong results, Xerox has revised its full-year 2010 estimates upward. The company expects adjusted EPS in the range of 88 cents–92 cents, up from the previous guidance of 75 cents–85 cents per share.
Despite the improved results, we believe intense competition from its peers and rising debt will adversely affect the company’s operations in the near future. As a result, we recommend the shares of the company as Hold (Zacks #3 Rank) in the short-term.
Read the full analyst report on "XRX"
Zacks Investment Research
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